The Limits of "Big Fiscal"

As Democrats prepare for the midterms, most are coalescing around the theme of affordability. The focus on price levels and the economy’s overall health is a decent bet—assuming Democrats aren’t diverted by the Trump administration’s aggressive response to Charlie Kirk’s assassination. Indeed, the stagflationary conditions that economists warned of are increasingly evident. From a new surge in grocery prices to anemic job growth to mounting layoffs in tech, retail, and manufacturing, burdened households haven’t experienced a whiff of the boom Donald Trump promised.

Hammering Trump and the GOP on the economy gives Democrats a chance to change the narrative on inflation. Its forty-year high under Joe Biden contributed to his party’s defeats in 2024 while eclipsing the impact of measures to stoke fair competition, curb junk fees, and eliminate supply-chain choke points. In the short term, a disciplined message could boost Democratic challengers like Rebecca Cooke, Paige Cognetti, Bob Brooks, and Christina Bohannan, who are best positioned to reconnect the party with blue-collar families and overcome GOP efforts to gerrymander its way to victory.

What, in all practicality, Democrats could do at the federal level to rapidly ease the cost-of-living crisis is more nebulous. At least until they recapture the presidency, they will have to develop fresh solutions in blue cities and states or seek extremely unlikely compromises with Trump and his top congressional allies. Of course, by the time the next Congress enters session, Democrats will be swept up in the 2028 presidential primary. With no heir apparent, the race could see independent-minded contenders candidly discuss the ways in which the excesses of identity politics and a porous border further sank their party’s appeal. Whoever secures the nomination, however, must also push an economic platform that reverses their party’s humbling losses with households earning less than $80,000 a year.

Unavoidably, that task must involve yet another reckoning with Biden’s complicated legacy, this time centered on the merits of “big fiscal”—shorthand for bold stimulus measures to reignite demand in an economic crisis. And it could prompt a new round of intraparty strife. Some congressional members and advocacy groups want to resurrect the Build Back Better framework, the mooted sequel to Biden’s American Rescue Plan. Pointing to miserly Republican cuts to the safety net, progressives are understandably eager to redress the expected damage and expand the “care economy.” They believe, too, that retreating from the new fiscal liberalism would inevitably cede ground to establishment economists advising a more parsimonious approach, modeled on the legacy of Robert Rubin, Bill Clinton’s Treasury Secretary.

Other Democrats, including some of the party’s Rust Belt populists, seem more reluctant to double down on the benefits of fiscal expansion. They forcefully oppose regressive budgets and tax brackets and want to remedy gaps in health care. But they are arguably more interested in tying affordability to fundamental questions of economic opportunity and power. Faced with a choice between sprawling stimulus measures and specific policies to boost wages, eliminate predation, and diversify pro-growth competition, it is probable these Democrats would favor the latter set heading into the uncharted waters of the 2028 campaign.

The course Democrats take isn’t just about debate optics and campaign messaging, however. Democrats need to find a decisive way to reach disaffected Americans who believe government has grown only more unresponsive to popular demands. Scores of working-class voters are enraged by the system and crony capitalism; at the same time, research shows that, outside of health care, they tend to prefer pre-distributive policies to means-tested social programs. Above all, blue-collar voters sense they lack real economic agency; that their paychecks don’t even cover necessities, that they can’t build a future, and that they are at the mercy of powerful and deceptive economic forces in their everyday lives. They need immediate, perceptible, and enduring change on all these fronts—something big fiscal, for all its good intentions, fell short in delivering.

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The scorecard for big fiscal is thorny ground that has divided Democrats’ policy networks since Covid’s aftermath. Led by Larry Summers, who had advised Presidents Obama and Clinton, the mainstream economics profession cautioned strongly against the scale of Biden’s stimulus, believing its inflationary effects could be long-lasting. By contrast, Biden’s allies argue that the administration prevented a protracted recession of untold social consequences. Progressive Keynesians such as Claudia Sahm, Arin Dube, Paul Krugman, and Jared Bernstein, who chaired Biden’s Council of Economic Advisors, maintain that the American Rescue Plan and the annual budgets that followed delivered a much stronger economy coming out of the pandemic. In their view, inflation was a mostly transitory event caused by Covid’s global supply shock, as indicated by the fairly steady pace of disinflation after June 2022 (note that China ended its “zero-Covid” shutdown in January 2023).

The fiscal dimension of the Biden agenda certainly had laudable aspects. Building on the paradigm-shattering CARES Act, Biden’s early legislative achievements contained important provisions to keep desperate families afloat, reduce poverty, and amplify demand for workers who hadn’t been furloughed and were reentering the labor market. And, as noted by commentators on social media, some of these investments led to local projects now falsely claimed by the Trump administration as its own.

The rationale for stimulus spending was straightforward and drawn from recent—and painful—historical experience. Obama’s own stimulus in 2009 to pull the country out of the Great Recession was regarded in hindsight by sympathetic economists, including Summers, as too limited. Unemployment peaked at ten percent in October 2009 and didn’t fall to under five percent until January 2016. The pivot to budgetary restraint after the infamous fiscal cliff negotiations with John Boehner’s House Republicans in late 2012 and early 2013 was also thought to have slowed the recovery. Biden’s top policy advisors didn’t want to repeat those mistakes, which, on top of multiple trade shocks, had steadily bled working-class support for Democrats and exacerbated stagnant conditions across the Midwest and Appalachia.

The fallout from Covid and Biden’s victory over Trump in 2020 allowed Democrats to apply what they believed were the main lessons of the Obama era. Although stronger labor rights, a higher minimum wage, and antitrust enforcement were part of the new progressive economics, fiscal policy took precedence. In fact, it is arguable Biden’s team and congressional Democrats understood fiscal policy as the basis for any permanent “paradigm shift” in political economy. They thought that running the economy “hot” was the responsible thing to do and that it would deliver the most immediate, widespread gains to historically low-income workers. They also undoubtedly believed big fiscal could help prevent Trump’s return. Public support nevertheless eroded once inflation, largely unknown to two generations of prime-age Americans, kicked in. By 2022, the administration’s hefty stimulus no longer resonated as an expression of compassionate, active government. Instead, the widespread impression that “Bidenomics” worsened inflation only calcified with time.

Befuddled by Biden’s poor poll numbers, the administration’s champions bemoaned a “vibecession.” Yet the anxiety and discontent ordinary workers experienced wasn’t baseless. Urban and small-town workers suffered alike from rising prices for daily necessities, but the pain could be especially pronounced in less diversified economies with more concentrated ownership. Progressives also severely underestimated how much grocery prices, which rose by over twenty percent and are excluded from core inflation readings, had exploded dependence on food banks. It didn’t help, of course, that several emergency safety net measures expired in the same period that rising interest rates made debt-constrained families poorer.

Meanwhile, Biden’s passive stance on monetary policy intensified perceptions the White House was disengaged from the trade-offs faced by those living paycheck to paycheck. Interest rate hikes to cool inflation incensed struggling workers and entrepreneurs, who saw higher monthly credit card fees and soaring borrowing costs as yet more proof the economy’s plumbing was failing.

Progressives looking for surer footing touted the low unemployment rate as a vindication of fiscal policy. Their analysis skirted the ongoing exit of prime-age men from the labor market and the growing ranks of the long-term unemployed (now at a five year high under Trump). Headlines trumpeting a jobs boom failed to resonate in communities struggling with the persistence of these trends. Negative sentiment about the economy’s health also likely reflected a growing awareness that a historically high number of migrants had flooded low-wage sectors, including gig platforms and the informal economy. While some economists say the spike in migrant workers might have softened inflation, it is dubious any benefit flowed to workers who have long contended with stagnant wages and rising housing costs, and who feel America has an increasingly bifurcated economy.

In turn, the pro-worker bent of big fiscal became less and less convincing. Even heterodox economists keen to see economic growth rebalanced toward workers’ incomes now suggest that the core defense of Biden’s fiscal policies—that wage gains ultimately outpaced price hikes—doesn’t hold up under scrutiny.

Of course, the shortcomings of the new fiscal liberalism didn’t occur in a vacuum. In addition to the pandemic’s myriad disruptions—not least China’s extended shutdown and Russia’s invasion of Ukraine—there were fundamental supply-side constraints stemming from globalized trade and corporate consolidation that both parties had neglected for over two decades. Fiscal policy could boost demand and public-private contracts, particularly in large municipalities, but it couldn’t will new supply chains and more competitive markets into existence. Nor could it prevent the phenomenon of “seller’s inflation,” which reverberated from oligopolistic firms with well-established pricing power into the broader economy. To be sure, Biden’s competition mandate and industrial policies were intended to solve those other challenges. But it is hard to dispute these initiatives played second fiddle to the fiscal agenda and faced their own obstacles to rapid implementation.

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Nine months into Trump’s sputtering second-term economy, the political disappointments of Biden’s economic record still haunt Democrats. And they remain uncertain over how to move forward. During Biden’s tenure there were rolling debates over whether Democrats need to embrace “popularism,” “deliverism,” a “liberalism that builds,” “everything bagel liberalism,” or full-throated economic populism. The idea is that one of these themes holds the key to building a coalition that can finally vanquish Trumpism and enact reforms that leave better-off voters looking toward the future, not the past.

What these debates miss, however, is that political capital is usually quite limited for the victorious coalition in every presidential election, even when the electorate is pulsating with demand for relief, reform, or more sweeping change. In Biden’s case the mandate following Covid and Trump’s volatile response to the crisis was “get back to normal”—a somewhat contradictory message from an electorate inflamed with populism and social justice demands, yet one that nevertheless meant Democrats had to choose wisely among their many competing priorities. On the economic front, big fiscal dominated for clear and principled reasons, but in the end it didn’t solve the crisis of development and lost economic agency driving American workers to despair.

The lessons Democrats take to heart thus must be different from those of the previous decade. Done right, expansionary fiscal policy can be a lifeline in an emergency, but it is not a substitute for rebuilding the foundations of worker power—nor, for that matter, party power in ailing regions. It is also plainly risky. Whether or not it is inherently inflationary, big fiscal gives hardline conservatives an opening to conflate other policies aimed at strong and effective market governance with “irresponsible” and “unaccountable” big government.

Democrats contemplating the substance of a populist agenda must avoid that trap. They must also remind themselves of the trust they need to win back—and sustain. If Democrats do prevail in the 2028 election, they will have an even smaller window than in 2021 or 2009 to enact legible, effective reforms that give ordinary workers real peace of mind. Tempting as it may be to stitch together another grand fiscal package, this is not the path to a majority coalition. Instead, Democrats would be better off refining a pro-development, anti-domination agenda that won’t be tarred as inflationary. To that end, reformers should tackle widespread abuses the party has repeatedly hesitated to confront head-on: millions of dollars in annual wage theft, employee misclassifications, algorithmic price discrimination, highly restrictive non-competes, “Training Repayment Agreement Provisions,” and new forms of consumer fraud, to name a few.

Fighting these abuses may not be everything. Democrats may not have obvious remedies in each case. But in an age of blatant power grabs and elite disdain for the public interest, perhaps the oldest American political lesson applies: Democrats are on the march when they start anew the fight for a dignified life, free from predation.